Monday, March 7, 2016

Watch List: Hanover Insurance Group

Hanover Insurance Group (THG) works as one of the many insurance carriers in the USA. They work to insure others by a process of finding clients, underwriting to see if they could be bound for coverage, and ultimately, if approved, bound for coverage by their company for property and casualty insurance. It was founded in 1844 and is based out of their headquarters in Worcester, Massachusetts.


Yield: 2.15%
Annual Payout: $1.84 (paid quarterly)
Payout Ratio: 28.6%

Overall, THG has a pretty low dividend yield. It's well below the Cookie Jar's minimum of 2.5% but the annual payout still equates pretty well. On the flip side, their payout ratio is awesome. At only 28.6%, they have tons of room for a greater payout and ultimately this means that they will very likely continue to make raises in the future. This is something that we dividend growth investors always like to see!

Ex-Dividend Date:

THG's ex-dividend date is March 9th. My budget will not be finalized by then and I don't have any working capital at the moment at which to throw at the stock. Unfortunately this means that even if after my assessment is complete, even if it looks great, I won't be able to invest in them unless a magic pot of gold shows up... today! The amount equates to $0.46/share in loss of dividend income by missing the ex-dividend date of the company.

Dividend Growth:

THG has been raising their dividend payments for the last four years. This coupled with the fact that they have a small payout ratio of only 28.6% puts them right on the money as a potential future investment if everything else checks out. Their raises average 11.2% annually over the last three years.


Currently (3/7/2016 at 11:34AM), THG trades at $85.62/share. This is about 2.06% below their 52 week moving average of $67.74-87.06 so you can say that it's at a discount (barely...). It's not the best price that I could ask for it but at least it's below the high. As a discount dividend investor, this definitely doesn't paint a very good light on this stock at the current moment.


Currently, THG has an EPS of 7.38 and a P/E ratio of 11.59x. Historically, they have had an annual average growth in their EPS of 17.41%, a 9.93% increase in revenue, and of course an average raise of 11.07% (over the last five years). Their income is clearly going up and their cash flow was going with it until 2015 when the cash flow decided to drop off. This doesn't necessarily scare me off as this is pretty typical with insurance companies right now. In a market that is very inflated with the booms of people reaching driving age/home ownership, each company has to chomp at the competition to win others over to come to their company. However, once you're with a company, it's that much harder to lose someone to another insurance company as most people shy away from big changes or things they're used to. Basically, if an insurance company doesn't piss you off, you'll stay with them.


I think that Hanover Insurance Group is a good company. They know how to make money and they clearly know how to run their underwriting department as in the business, it's hard to keep profits up when most companies don't make a profit off insurance sales, only off the investing they make from the money given to them to insure that person. It does scare me to get into an insurance company stock however due to the fact that the market has been very good in the last couple years. It would be easy for most companies to make money off the market during that time. In a tough market, the true earners show their colors though so it will be good to see how THG does over the next five years when the market sees fluctuations. With that being said, the stock is overvalued right now and they're not a key focus because of their low dividend payments. I will however add them to the hold list to see how they do in the future. If they can bring dividends up to 2.5% at least they might be worthy of a future investment.

(sorry for the double post today, ladies and gentlemen!)

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